By Jon Derkits
On June 26, 2019, Amazon and Boulder-based company Nite Ize jointly filed a complaint in the US District Court in the Western District of Washington against 21 defendants for alleged selling counterfeit Nite Ize products on the Amazon marketplace. This lawsuit represents the latest in a series of anti-counterfeiting lawsuits filed by Amazon and brands, dating back to 2016.
If you read between the lines, this lawsuit reveals a few troubling issues about Amazon’s counterfeit problem — notably, Amazon sometimes knows very little about third-party sellers on its marketplace, can often fail to “take swift action” to shut them down, and is placing tremendous burdens on brands to police the marketplace.
AMAZON SOMETIMES KNOWS LESS THAN YOU THINK ABOUT ITS THIRD-PARTY SELLERS
This lawsuit targets two unknown entities, nine named individuals, and ten ‘John Does’. In addition, there is a lot of “either/or” language in naming the defendants: “…Defendant Chun Wong is either an individual who resides in Ontario, Canada or is an ‘a/k/a’ or alter ego for one or more of the other Defendants identified in this Complaint.” There is also language that associates the Defendants with specific seller accounts “on information and belief.” While this legal language is not uncommon, it is troubling that, despite all of the data that Amazon notoriously collects on everything that happens on or around its web properties, it can’t state with certainty who exactly is behind third-party seller accounts.
This isn’t unique to the Nite Ize lawsuit, by the way. A March 2018 lawsuit in which Amazon and designer Vera Bradley teamed up to prosecute counterfeiters also included this “either/or” language and included over two dozen “John Does” as defendants.
Even more recently, in an opinion rendered by the US Court of Appeals for the Third Circuit in Oberdoff v. Amazon.com, Inc. regarding Amazon’s liability for third-party products sold on its marketplace, the court noted, “Neither Amazon nor Oberdorf has been about to locate a representative of The Furry Gang, which has not had an active account on Amazon.com since May 2016.”
Why does this matter? Certain industries — notably banking — have strict “Know Your Customer” regulations and controls to prevent businesses from being used by criminals in furtherance of their illegal activities. The Nite Ize lawsuit is the latest reminder that Amazon has a demonstrated history of failing to sufficiently “Know Your Customer” (i.e., third-party sellers), and its apparent that Bad Actors are exploiting that.
THIS LAWSUIT CALLS INTO QUESTION AMAZON’S ANTI-COUNTERFEITING MEDIA STATEMENTS
Amazon touts its “innovative machine learning” as a core tool that it wields to detect potential counterfeits and “anticipate and outwit bad actors.” Amazon also states that: “Numerous Amazon investigators around the world respond quickly to review any listing identified as a potential counterfeit product. These investigators also review notices of claimed infringement from rights owners, who are most familiar with their products. When Amazon determines a product offered for sale is a counterfeit, it removes the product immediately.”
Why does this matter? Two reasons. First, it’s self-evident from this lawsuit that Amazon’s automated detection systems are not impregnable. Amazon’s automated systems seemingly failed to detect that the Defendants were 1) operating multiple seller accounts, which is a violation of the Amazon Business Solutions Agreement, 2) changing their seller names often in an effort to mask their behavior, and 3) selling counterfeit products for nearly a year (and maybe longer). Even if Amazon did detect some of these issues, Amazon didn’t “immediately” take action to shut down the sellers or remove their offers on Nite Ize products. That is a failure in every sense of the word.
Second, and perhaps more disturbing, is that Amazon received good, consistent signals from Nite Ize regarding counterfeit Nite Ize products. Let’s take an example from the lawsuit:
On or around August 1, 2018, Nite Ize conducted a test purchase from Defendant Wong’s “MentuShop” seller account for what Defendants advertised was one “Nite Ize Original Steelie Vent Mount Kit.” … Nite Ize reviewed the product Defendants shipped and determined that the product sold by Defendants is counterfeit.
Based on the data collected by 3PM Solutions, an e-commerce intelligence company focused on online marketplaces, this seller still had an offer on the Nite Ize Original Steelie Vent Mount Kit as of December 6, 2018 — four months after Nite Ize had performed a test purchase and determined the products to be counterfeit.
That’s not the only instance in this lawsuit in which Amazon was abysmally slow to act. In one of the more egregious cases, Defendant Wong operated a store under the name “Vincent Store 789” and was able to continue selling a Nite Ize Original Steelie Magnetic Phone Socket for nearly six months after Nite Ize’s test purchase on or around September 4, 2019.
If we take this lawsuit as ex post evidence that all of Nite Ize’s counterfeit reports to Amazon were valid and true, either Amazon’s investigators consistently failed to make correct decisions in evaluating Nite Ize’s counterfeit claims, or Amazon’s investigators failed to act immediately following a counterfeit determination. Neither is a good look for Amazon.
THE BURDEN FOR POLICING COUNTERFEIT IS ON THE BRANDS
Amazon hasn’t been shy in broadcasting its engagement with brands to improve the ways that it detects and prevents counterfeit products from being sold to customers. From the launch of Brand Registry and Transparency in 2017, to the launch of Project Zero in early 2019, Amazon has consistently celebrated its programs that empower brands to “help drive counterfeit to zero.” But what happens when Amazon’s automated systems fail to do the heavy lifting in detecting counterfeit products? The Nite Ize lawsuit is instructive.
Between approximately July 2018 and January 2019, Nite Ize performed roughly 24 different test purchases from the defendants named in the lawsuit. These test purchases represent products that Amazon’s automated systems did not detect and, as a result, fell to Nite Ize to identify, gather evidence, and report to Amazon. For brands — especially those with large catalogs — the time and money required to continuously scan their Amazon listings and purchase suspicious products can be prohibitively expensive.
Intangible property protection is a serious matter though, and some brands may willingly shoulder this heavy load. Especially because Amazon has said that the information that it gets from brands feeds into its automated systems “so we can improve our proactive protections to prevent counterfeit listings in the future.” If I’m a brand currently shouldering a heavy burden in policing my Amazon listings, maybe this means that there’s a light at the end of the tunnel?
The Nite Ize lawsuit seems to suggest a different story. Nite Ize had to perform around two dozen test purchases over a seven month period on its STEELIE products because counterfeit products were still leaking through Amazon’s automated systems. It begs the question — what were Amazon’s automated systems learning from Nite Ize’s test purchases?
Amazon speaks proudly of its investments in technology and people, as well as its partnerships with brands, to drive counterfeits in its store to zero. However, there are still gaps in Amazon’s anti-counterfeiting measures, especially in terms of what Amazon knows about its third-party sellers and how quickly its automated systems learn. The Nite Ize lawsuit brings these gaps into sharp focus.
You may disagree with my opinions on the Nite Ize lawsuit and the state of counterfeiting on Amazon. I’m sure Amazon does. But here’s a simple way to test whether anything that I’ve said is worth consideration — go to Amazon and search for “Nite Ize Original Steelie Dash Mount Kit.” If you do this today, you’ll see roughly 60 offers from third-party sellers. Approximately half of the third-party sellers are offering the product for less than the $37.49 that the product is sold for on Nite Ize’s website, and the current Buy Box winning offer on Amazon is $18.73. Does it seem like Amazon is protecting brands and consumers from counterfeit products?